The ‘farm products’ industry has caught my eye in recent weeks as I have been slowly adding to my Archer-Daniels-Midland Company (ADM) holding as better prices, value and yield for this dividend stalwart began to emerge. While I’m not a huge fan of commodity based businesses, (I see ADM more as a consumer staple play with commodity ties, rather than a pure play commodity based business), I began to wonder what other dividend players can be found on the farm.
When I first started this blog I wrote a post titled, “Moo… Agribusiness Dividend Stocks,” where I highlighted various agribusiness plays including, The Mosaic Company (MOS), Potash Corp. of Saskatchewan, Inc. (POT) and Agrium Inc. (AGU) as well as Monsanto Company (MON), CF Industries Holdings, Inc. (CF) and even the ETF Market Vectors Agribusiness ETF (MOO). A few of these names can be found among the portfolios of our fellow dividend growth investors and while some of those seed and fertilizer businesses clearly offer some compelling yield and growth potential I found a few other lesser known dividend payers from the farm. With that being said, let’s take an overview of some of those dividend stocks.
First up, Bunge Limited (BG). Similar in business to ADM, BG produces, processes and stores oilseeds and grains, including soybeans, rapeseed, canola, sunflower seeds, wheat, and corn to animal feed manufacturers, livestock producers, wheat and corn millers, other oilseed processors, third-party edible oil processing companies, and biodiesel industries. Founded in 1818 and headquartered in White Plains, New York, BG is a company with a very long history of operations. Currently yielding a decent 2.30% with a relatively low payout ratio of 29.5% this stock sports a safe dividend with room to grow based on a current EPS of 5.15. BG also has a pretty impressive ten year annualized dividend growth rate of 10.31%. From a valuation perspective, BG has a current PE of 20.4 well below its five year average of 27.0. Like ADM, could BG be looking a lot more attractive than in recent months because of commodity price pressure, a strong U.S. dollar and general weakness from the Asian and European economies? Forward PE for BG looks a lot more enticing at 9.9. Of course, a four star rating from Morningstar doesn’t hurt either.
Continuing our stroll around the farm I came across Cal-Maine Foods, Inc. (CALM). CALM is the largest egg producer in North America. The company markets and distributes its eggs under popular brand names including Egg-Land’s Best, Land O’ Lake, Farmhouse, and 4-Grain as well as various private labels. Chances are quite high that you have consumed a CALM egg a some point in your life, especially if you live in North America. Based in Jackson, Mississippi, CALM offers us a juicy 4.40% yield with a moderate payout ratio of 41.5%. CALM has a current PE of 8.2 which is well below its five year average of 14.4. Forward PE is even less at just 4.8. Seems like many companies in the agricultural/food space are trading at attractive values these days.
If any of you have been to the grocery store in recent months you already have seen the volatility that can be found in the egg business. Anything from Avian Flu to shifting consumer tastes can put a strain or cause a glut upon egg production which easily impacts the bottom line of CALM. Near term, we are experiencing an egg shortage and for the most recent period ending in August egg prices rose 65% to $2.24 up from $1.35 the year before for a dozen. Could this bode well for CALM going into 2016?
Moving away from the eggs section we find ourselves in the fresh produce aisle and Fresh Del Monte Produce Inc. (FDP). FDP produces, markets, and distributes fresh and fresh-cut fruit and vegetables worldwide including bananas, pineapples, melons, tomatoes, grapes, apples, pears, peaches, plums, nectarines, cherries, citrus, avocados, blueberries, kiwi and much more. FDP has an interesting history as it was created when RJR Nabisco sold the fresh fruit division of Del Monte Foods in 1989. Following that sale, FDP changed hands several times until current CEO Mohammed Abu-Ghazaleh purchased Fresh Del Monte in 1996 and took it public the following year. Currently yielding a relatively low 1.24% with a 19.9% trailing twelve month payout ratio, FDP has a current PE of 16.0 which is above it five year average of 13.9. While the yield may not be that attractive, FDP still does trade well below the S&P averages. With room to continue to pay and grow its dividend, I would like to see a longer history of consecutive dividend distributions before considering investing in this name.
It’s interesting that the above companies are not found among the many dividend growth portfolios that exist even though each provides a staple product that we are all dependent upon. Sure, the products can be fickle when it comes to pricing as these ‘staples’ are still commodities subject to the rise and fall in price of the underlying commodity which may make it less attractive for anyone looking to add stability to a dividend growth portfolio. But, with all the headwinds these companies are currently facing they still offer decent yield and very compelling value.
Are any of the names mentioned in your portfolio or on your watch list? Please let me know below.
Disclosure: Long ADM